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On Implicit Climate Subsidy Exceeds Profits at 20 Top Fossil Fuel Companies

The IPCC 4th assessment you reference in the linked working paper states that the peer-reviewed literature contains estimates with a mean of $43/ton of carbon and a standard deviation of $83/ton. Firstly, this implies that the scientific literature values the social cost of carbon almost one order of magnitude less than the figure of over $100/ton of CO2 you use in your calculations ($43/tonC = $11.7/tonCO2). Secondly, it just again emphasizes the huge uncertainty involved here. Expressed another way, the IPCC numbers say that only 68% of the peer reviewed SCC estimates lie in the range of -$11 to $34 per ton of CO2 with the remainder lying outside this range. 

Given this uncertainty, the text towards the end of your referenced article appears quite strange: 

"We accept the range of uncertainty in measuring the net cost to society of a tonne of carbon dioxide emissions but note that uncertainty goes both ways ‐ the cost could be higher than our mean estimate as well as lower. However, these limitations do not undermine the usefulness of this approach to identifying:

  • the level of materiality of the risk,  
  • the comparability between companies and fuel types, and  
  • the companies’ net economic contribution to society."

How can these "limitations" not "undermine the usefulness of this approach"? In all three points you raised, an increase in uncertainty (let alone to the point where the standard deviation is double the mean) strongly reduces the usefulness. Your selection of a CO2 price one order of magnitude greater than the mean clearly illustrates this. Statistically speaking, your estimate of >$100/ton in 2008 has about the same likelihood of being accurate as lower bound estimates far below zero. This can achieve little other than further polarizing people on opposite sides of the climate debate. 

If you want a useful tool for investors to assess climate change risks to their portfolios, I'd rather suggest a thorough analysis of surveys and the broader literature about societal willingness to pay for CO2 emissions. In my opinion, a good statistical analysis of the historical trajectory of societal willingness to pay for CO2 emissions will allow for more useful conclusions to be drawn in this regard. 

August 14, 2015    View Comment    

On Seeking Consensus on the Externalized Costs of Energy: Methodology

Thanks for these insights, Lewis. In general, I agree with you that there is great uncertainty regarding externalized costs and that the number that emerges from any kind of methodical quantification exercise will be strongly influenced by subjective bias. The "intellectual barriers" you detail in the linked reference are valid and greatly reduce the degree of certainty which can be linked to any individual intellectual quantification of eternalized costs, but I would stop short of saying that such exercises are useless or even counter-productive. 

Take climate change for example. It is true that the range of uncertainty surrounding the future impacts of climate change is huge, but the general consensus that these impacts are significant is important in itself. Progress has been slow, but there are now several CO2 pricing schemes in operation around the world and several others under development. The large body of scientific literature on the topic, albeit spread over a wide range, has certainly contributed greatly to the increasing degree to which the impacts of climate change on future generations are being accounted for.

As more real-world data becomes available and computational capacities and models improve, the uncertainty range will be gradually reduced. Clearly, it would be ill advised to completely abandon methodical analysis of the cost of CO2 because of the great uncertainties it entails. Doing so would slow down the societal response substantially, thus increasing the risk or irreversible negative impacts on the biocapacity of our planet.

In general, I see a strong necessity to include externalized costs in this project for the sake of completeness. Even though there is a very large uncertainty range, there is a general consensus that externalized costs are real. If some estimate of these costs is not included, any comparative assessment of different energy options would be unfairly biased towards low-cost fossil fuels like coal. If the range of estimates received varies widely, that is a conclusion in itself. One thing I am certain of though is that the median estimate of externalized costs will be significant (and positive) for the majority of energy options evaluated in this project.  

August 2, 2015    View Comment    

On Nine Reasons Why Low Oil Prices May "Morph" Into Something Much Worse

Gail, I was wondering what are your thoughts on the use of standard vs. PPP GDP figures. You generally use standard figures (not adjusted for PPP) which makes it look like global energy intensity does not decrease. Most other institutions use PPP which paints a very different picture of fairly good reductions in energy intensity. What is your reasoning for not adjusting for PPP?

July 25, 2015    View Comment    

On Putting the IMF Externalized Cost Report in Perspective

Discussions about the path towards sustainability are very interesting and very important. Many people think that we should (and can) do this by making a global transition to clean energy our very highest priority. Personally, my view is that we should first get the developing world to a decent standard of living by whichever means is most effective. In the meantime, us rich folks should evolve our economies, both via technology and cultural changes, so that developing nations can easily adopt these more sustainable practices as soon as they become economical/practical. In practice, this would be reflected in a substantially lower CO2 price for the developing world than for the developed world, reasonably calculated by allowing fast growing developing nations to discount future costs of carbon at a much higher discount rate.

About coal, I dislike it as much as the next guy, but in my studies I just realize again and again how much better coal is as an economic kick-starter than anything else. It is very simple to use by countries with large and uneducated workforces, it is almost always locally available in abundance, it has very low up-front costs (ideal for rapid growth), it supplies reliable on-demand power or heat and, perhaps most importantly, it is instrumental in creating the building blocks of an industrialized civilization - steel and cement (e.g. only half of Chinese coal use is in power production). 

I will soon start the next chapter of the Seeking Consensus project where we will discuss externalized costs. These types of discussions will feature prominently there and should be very interesting...

July 24, 2015    View Comment    

On Putting the IMF Externalized Cost Report in Perspective

Ah, thanks for picking that up, Joris. I sometimes get lost in the technical details and miss these things...

I have gone through the article and rewrote phrases that insinuate that this report represents the views of the IMF. The disclaimer is also mentioned at the start and end of the article. 


July 24, 2015    View Comment    

On Coal Miners, Extractive Industries, and a Sustainable Economy

The trend towards increased automation has been talked about for a very long time, but has moved slower than many people thought. Personally I think the rate of change will remain slow enough to allow society to adapt without major negative consequences.

Overall, this trend will further enhance the characteristic behaviour of a capitalist system which we are quite used to by now: increased efficiency at the cost of increased inequality. People who have the financial discipline to start investing in a capitalist system gain claims on the production of others which can again be leveraged to buy more such claims, thus leading to exponential wealth accumulation. For this simple reason, the wealth gap between the investor class and the rest will always tend to increase. With increased automation, it will be the same thing: those who start investing gain claims on the production of machines which can again be leveraged to buy more such claims. The income gap between the skilled and the unskilled will also increase further as productivity-enhancing technology improves, whether through automation or any other means. 

In general, this only implies that our wealth and opportunity redistribution systems need to become even stronger than they are today. As long as this change happens slowly enough, our political system should handle this without major problems. Many people will not be happy with this (as they are already now), but we will have little choice.  

About clean energy, the "good" thing is that clean energy is generally less economically efficient than dirty energy. The clean energy transition will therefore require more work per unit energy produced, thus creating more jobs. We just need to make sure that we keep going in one direction. For example, a subsidy induced solar/wind boom followed by a bust when the subsidies are ended is not good for anyone. Similarly, if the US shale revolution follows some of the more pessimistic projections, we will see a large shift from coal to gas followed by an equally large shift back from gas to coal. This will also lead to some serious economic inefficiencies. 

July 22, 2015    View Comment    

On My Dr. Strangelove Moment: How I Came to Love Clean Coal

Sorry if my comment came across as unbalanced, Bob. About the initial grammatical issue, I of course meant to say that it is my opinion that CCS will scale faster than most people expect when we get a sizable carbon price. This opinion is based on my current understanding of the matter as more elaborately detailed in my five-part CCS series here on TEC: (1, 2, 3, 4, 5).

If you want to refute the three "classic points" I mentioned, please do so. According to my understanding of the matter, they are factually correct. Full CCS value chains have been demonstrated both for industrial applciations and retrofits. There is also little doubt about the technical feasibility of BECCS. 

July 13, 2015    View Comment    

On My Dr. Strangelove Moment: How I Came to Love Clean Coal

Thanks for a great article, Ed. CCS is finally becoming a reality and it is great to read about your positive first hand experiences of this reality. 

I think many people will be very surprised at how quickly CCS scales when a technology neutral clean energy policy framework is finally put into place. The range of concentrated point sources at which CO2 can be captured is vast and the range of technologies available for both retrofits and new installations at sources of varying concentrations are continuously expanding and improving. 

Simultaneously, the CO2 utilization aspect that you often highlight is certainly gathering momentum. I also think it is safe to say that, under a technology-neutral clean energy policy framework, the rapidly rising CO2 supply will spark many new innovations. Currently, EOR is the leading candidate, but there are many other possibilities for utilizing the unique properties of CO2. Applications using CO2 as a working fluid in turbomachinery (geothermal cycles for extra storage capacity), as a physical or chemical agent in various energy storage schemes, as a carbon source in the broader chemical industry, and as a carbon source in biological applications are all showing great promise with much potential for synergies among each other and within the broader economy. 

Other classic points also deserve additional emphasis: 1) CCS is the best option for CO2 reduction in many direct industrial applications, 2) CCS is the best option for reducing emissions from existing long-lived infrastructure and 3) CCS is the only option for achieving negative emissions. According to the latest IPCC report, achieving recommended greenhouse gas concertation targets will be twice as expensive if CCS is removed as an option and possibly not even possible.


Let's hope this year's El Nino helps to speed progress towards a technology neutral climate policy...

July 12, 2015    View Comment    

On Can We Really Decouple Living Standards from Energy Consumption?

Good point about trade surplusses and deficits. I don't know about good sources of data for the energy implications, but quite a lot of work has been done on CO2 emission adjustments based on balance of trade. If this is accounted for, US emissions should increase by about 0.75 Gt/year and Chinese emissions should decrease by about 1.15 Gt/year - both about 15% of repective total emissions.

Interestingly, both Europe and Japan are net importers of emissions. Even though they may have positive balance of trade (sometimes) they import much more energy and emissions intensive goods and services than they export.

Unfortunately, median income data for Europe and Japan is more difficult to come by. However, I think that median income in these regions has moved much more closely with GDP than in the US (probably part of the reason why growth in these regions is so weak), implying that the energy intensity graph in this article should be a good indication. 

June 17, 2015    View Comment    

On Can We Really Decouple Living Standards from Energy Consumption?

Yep, it is increasingly difficult to maintain proper perspective in our modern world. I am one of those service workers sitting in my climate controlled office and I have to focus very hard to ensure I don't lose track of reality. Striving to understand where all of my material and energy consumption comes from, keeping up to date with developments in my third world country of birth, the occasional discussion with the farmers in my family and following a range of global trends all help in this regard. 

People on the ground always have the best perspective, but then again you cannot be on the ground in all the areas needed to form a holistic picture of where we stand regarding the multifaceted sustainability challenges we face today. I therefore feel that these academic debates can be very valuable provided that those who participate critically assess whether their views remain consistent with what is happening on the ground in the real world. 

June 10, 2015    View Comment    

On Can We Really Decouple Living Standards from Energy Consumption?

Thanks for these interesting remarks. In Europe, living standards (measured by real income and GDP) started plateauing about one decade ago. Before that time people were still getting richer. It should also be mentioned that when I say that welfare (in terms of income) is stagnating, I don't mean that this is the case for individuals who should still increase their income as they become older and more experienced. 

It should also be kept in mind that the energy efficiency measures you mention are not free. Because they cost more money, they will generally also consume more energy in manufacturing. 


June 9, 2015    View Comment    

On Can We Really Decouple Living Standards from Energy Consumption?

Thanks, that is an interesting perspective. Do you have any numbers for LCOE from a breeder reactor relative to a conventional nuclear reactor? Can breeder reactors counter the largely irrational socio-political headwinds currently hampering nuclear power? 

June 9, 2015    View Comment